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CA Final · Advanced Auditing, Assurance and Professional Ethics · Audit Evidence

For Gomti Pharma Ltd, the auditor wants assurance that internal controls over purchase approvals operated effectively throughout the year. The purchase manager states in reply to the auditor's inquiry that all approvals were duly obtained. What is the correct auditor action under SA 500?

The auditor should perform additional procedures such as inspecting approval records or reperforming the control. Under SA 500, inquiry alone ordinarily does not provide sufficient audit evidence of the operating effectiveness of controls, so the manager's statement must be corroborated by other evidence.

  1. AConclude that controls operated effectively, as the manager is a responsible officer
  2. BTreat the inquiry as sufficient since no misstatement was identified
  3. CSeek further procedures such as inspection of approval records or reperformance, because inquiry alone ordinarily does not provide sufficient evidence of operating effectiveness of controlsCorrect
  4. DDrop control testing and issue a disclaimer of opinion

Explanation

SA 500 notes that inquiry may be important but alone ordinarily does not provide sufficient audit evidence of operating effectiveness of controls. It should be combined with inspection, observation, reperformance and similar procedures.

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